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Decent quarter; Outlook remains positive

Zee Entertainment Enterprises Ltd, a subsidiary of Essel Group, is an Indian mass media company with interests in television, print, films, mobile content and internet, and allied businesses.

* Revenue inched up 0.8% YoY in Q4FY21. Growth in Ads revenue (+8.1% YoY) and subscription revenue (+8.4% YoY) was partially offset by lower other sales and services revenue (-76.9% YoY).

* EBITDA rose to Rs. 541cr vs. Rs 284cr loss in Q4FY20 on lower costs. Adj. PAT (adjusted for one off impairment pertaining to digital publishing segment) totaled Rs. 305cr vs. Rs. 653cr loss in Q4FY20.

* Due to uncertainties in the economic climate, management decided to scale down its investments in Sugarbox for the foreseeable future. We remain optimistic on the stock, as company expects double digit growth in ads business, while OTT platform should support strong growth in the subscription business. We reiterate our BUY rating on the stock with rolled forward target price of Rs. 233 based on 13x FY23 adj. EPS.

Ads and subscription revenue supports topline

Consolidated revenue rose 0.8% YoY to Rs. 1,966cr, with Advertisement revenue growing 8.1% YoY to Rs. 1,123cr. Domestic advertising revenue grew 8.9% YoY, aided by continued recovery in macro environment. Subscription revenue also increased 8.4% YoY to Rs. 803cr (+5.6% YoY like-for-like growth excluding reclassification of music subscription revenue) driven by higher viewership and ZEE Music’s revenue.

However, other sales and services revenue fell 76.9% YoY to Rs. 40cr due to continued impact of COVID-19 on theater revenues and reclassification of music revenue to subscription. EBITDA surged to Rs. 541cr vs. Rs. 284cr loss in Q4FY20. EBITDA margin improved to 27.5% vs. 14.5% loss in Q4FY20, benefitting from lower programming costs, A&P and other expenses. Adj. PAT stood at Rs. 305cr (vs. Rs. 653cr loss in Q4FY20) partially offset by higher tax outgo.

Key concall highlights

* Management guided double-digit growth in domestic advertisement revenue for FY2022, if COVID induced lockdowns are not extended for too long. Also, EBITDA margin guidance revised downwards to ~25% for next two year (earlier ~30%).

* Company launched over 75 original shows and movies on ZEE5 in FY2021, including 14 shows and movies released in Q4FY21. ZEE5’s global MAUs & DAUs was at 72.6mn & 6.1mn, respectively in FY21. Average watch time per consumer during Q4FY21 improved to 156 average minutes vs. 152 minutes in Q3FY21.

* Consumer affinity for ZMC music library saw a 56.4% YoY growth with 12.2bn views on its YouTube channel during the quarter. ZMC added ~4mn subscribers on YouTube taking the total count to 72.8mn subscriber. Also, ZEEL witnessed strong growth and revised annual price to Rs. 499 for yearly subscription.

* Company continued to strengthen its market position further with ZEE network market share improving 70bps QoQ to 18.9%, on FTA and two channels in South markets.

Valuation

Advertisement revenues should show strong growth once second wave of pandemic gets normalized. Also, ramping up of OTT platform should benefit Subscription revenue. However, implementation of NTO 2.0 may continue to impact margins to some extent. At current price levels, the stock is available at an attractive valuation. We thereby reiterate our BUY rating on the stock with a rolled forward price target of Rs. 233 based on 13x FY23 adj. EPS.

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